You've made millions overnight. Now what do you do? By Staff Writer Alex Frew McMillan

NEW YORK (CNNfn) - Your IPO just skyrocketed? You inherited a fortune from a long, lost relative? Just win $150 million in the Powerball lottery? Those are problems most people wish they had. But sudden financial success doesn't make life easy.
"I'm worth $300 million, and I'm 34 years old," said Eric Greenberg, the founder of two Internet-consulting companies. It's beyond the wildest dreams of a lower middle-class kid, he says, and it hasn't really "registered" he's wealthy. His paper gain almost doesn't seem real.
If he's not careful, financial planners say, much of it won't be. Greenberg's situation is unusual, but not that unusual. Susan Bradley, a financial planner at Raymond James & Associates, estimates $10 trillion to $20 trillion in sudden financial gains will change hands over the next 10 years.
"It's very disorienting," said Bradley, whose book, Sudden Money, is slated for next spring. "When you're out there in the ozone and you feel like you have unlimited wealth it can be gone before you're ever established with it."

How should people deal with a windfall, whether it's from a savvy business investment or from a lucky lottery ticket such as the one purchased by a Minnesota woman this week?
"They should thank their lucky stars," said Bob Doll, chief investment officer for equities at Merrill Lynch Asset Management. Then get down to basics. "If all of a sudden you've made a zillion dollars, and it's all in your company, you should diversify. That zillion all of a sudden can turn into half a zillion."

It's happening more and more

Tens of thousands of Americans have become almost overnight multimillionaires in the '90s, the highest incidence of "wealth creation" this century, according to William Sahlman, a professor at Harvard Business School. He's dealt with about 200.
"A lot of them believe this is just funny money," he said. "I haven't seen a lot of truly bizarre behavior." Anyway, converting a large amount of stock into 16 Ferraris and a $25 million house is a difficult proposition, he said.
Bradley breaks out several ways people get rich swiftly: from divorce, accident settlements and inheritance to lottery winners or athletes.
And stock options, bonuses and entrepreneurial efforts have produced large gains for many people. S&P 500 companies pay 2 percent of their net income to employees in stock options, according to Bear Stearns.
Greenberg saw almost all the money roll in during the last four years, as his Viant Corp. and Scient Corp. went public.
"It's been quite an interesting experience," he said. "Needless to say I'm dealing with a lot of very complex issues right now."

How best to deal with options?

First, plan early. Stock awards often take people by surprise.
"We see panic, we see fear," said Bruce Strzelczyk, who heads the new-media practice at accounting firm Richard A. Eisner & Co.
The most aggressive clients exercise all their options immediately.
"You exercise early at a very low valuation, pay reasonable taxes, hope the stock runs up very, very high and pay at long-term capital gains rates," said Chris Loiacono, tax partner with Eisner.
But it can be difficult to come up with the money, and it's risky. An employee has to hold option stock for a vesting period, often three years and sometimes five, before selling. If you borrowed to exercise options and the price drops, you're left with stock that's not worth much and a ton of debt.
The conservative approach is to wait for all option restrictions to expire, so you can sell stock to exercise them. That's not great from a tax viewpoint.
Stock gains normally count as capital gains, taxed at 20 percent. But exercising non-qualified stock options counts as income, and income tax runs as high as 39.6 percent. Exercising at a low value, paying income tax on that, then paying capital gains on the stock gain makes more sense, Loiacono said.
The other kind of option, incentive stock options (ISO), don't count as income when exercised, if you hold the stock for 12 months. But ISOs can still be subject to the alternative minimum tax, which can be as high as 28 percent.
Most people exercise some of their options -- say half -- then wait for restrictions to lapse on the rest. With different elections people can make, that's often true with restricted stock, Loiacono added.

Trust management makes sense

There are several charitable donations and trusts a suddenly wealthy person can use. They're effective ways of diversifying or minimizing tax costs, Bradley said.
There are two main types of trust: a remainder trust and a leader trust. A remainder trust makes regular payments to the person who set it up during their lifetime, or for a set time. When the person dies or the time elapses, the money goes to a charity or even a family foundation.
"That's a logical strategy for part of the money," Bradley said. "You not only avoid capital gains tax but you get an income-tax deduction for a portion of the money you put in," she said, as a donation.
A leader trust works the opposite way, making regular income payments to a charity. When the trust ends, a beneficiary gets the assets, which ideally have appreciated.
Bradley said a good way of diversifying is an exchange fund such as offered by fund manager Eaton Vance. Exchange funds let investors trade blocks of stock for shares in a more-diversified fund, assuming it wants your stock. Instead of a tax benefit, it spreads risk without having to sell.

Diversity and liquidity are paramount

Diversification is often the biggest problem for people with sudden money.
"Usually they have it tied up 100 percent in one thing," Doll at Merrill Lynch said. "I don't think anybody can fault them for selling 10 to 20 percent."
Doll recommends converting stock to treasury bonds, municipal bonds and other stable vehicles.
"If they've had the moon shot, protecting it makes some sense," Doll said. But growth vehicles are a good idea, too. "They've presumably gotten it through something growing quickly," he said, so why not look for others?
Freeing up stock can be tough after public offerings, which lock up insiders for at least six months. There are often other restrictions, and dumping large amounts of stock worries investors. But brokerages' private-client groups will often lend against stock to a rich client, letting them diversify without selling.
Greenberg has used most of the vehicles available to him, fixed-income products, equities, venture-capital funds. He sells limited amounts of stock on a regular basis, the strategy most investment advisers recommend.
But he's held on to most of his gains.
"The stupidest thing I could do is sell all my stock," he said. He will look for more liquidity for houses and family. But eventually, he expects to give much of it away. His children "will be provided for, but they're not going to be rich."
For now, he goes to work because he wants to and isn't that worried about money. Sahlman pointed out those are traits shared by many entrepreneurs. Sometimes enough is enough, Greenberg said.
"Even if these stocks just tanked, I'm still going to be wealthy," he said. "These things are never going to be worth zero. So instead of being worth $250 million one day, I'm worth $100 million. What's the difference?"